While the whole semiconductor world is looking at 300mm foundries, a Taiwanese contract semiconductor manufacturer United Microelectronics Corporation acquires 200mm facility originally belonged to Silicon Integrated Systems.

UMC and SiS Microelectronics Corporation (SMC) today announced that in the respective meetings of the Boards of Directors of both companies, a plan to merge the companies was approved and a merger agreement signed. The agreement will result in one surviving company, UMC. UMC predicts that this merger will give it even more space to grow revenues and earnings as the semiconductor industry continues its recovery.

SMC used to be a part of Silicon Integrated Systems and is a foundry company that operates one 200mm wafer fab. SMC was spun-off from SiS at the end of 2003. The fab makes chips using 0.18 and 0.25 micron process technologies that resemble those developed by UMC themselves. The facility is capable of manufacturing up to 42 thousand wafers per month.

Improved economic conditions are the major driving force behind this merger. The current recovery in the semiconductor industry began to accelerate in the second half of 2003, and has caused capacity utilization rate at UMC to rise dramatically. By the end of 2003, capacity utilization reached 100%, making it impossible for UMC to meet all of the requirements of its global customer base.

In view of the long-lead time it takes to build a new fab, well in excess of one year, and costs that would likely exceed $1 billion, UMC concluded that a merger with SMC is the most effective method to quickly meet customer demand, relieve production bottlenecks, and maximize growth in response to the strong recovery in industry conditions. The merger allows UMC to accelerate capacity expansion and achieve improved economies of scale, as well as avoid the massive capital outlay that construction of a new fab would require, according to UMC.

UMC does not note the percent of utilisation of SMC’s fab, but SMC itself notes that the merger is the most effective way for it to widen its customer base and gain access to UMC’s advanced production technologies. The company expects to greatly strengthen its competitiveness and profitability through this merger.

UMC will issue 357 million new shares to accommodate the acquisition that is valued at about $321 million.

Last year UMC bought 15% shares of SiS after a long legal dispute on infringement of patents concerning process technologies.